Tuesday, November 18, 2014

1. ¸ÀgÀPÀÄ ªÀÄvÀÄÛ ¸ÉêÉUÀ¼À vÉjUÉ §UÉÎ gÁdå ªÀÄlÖzÀ «µÀAiÀÄ «¤ªÀÄAiÀÄPÉÌ ¸ÀĸÁéUÀvÀWELCOME TO THE STATE LEVEL INTERACTION ON GST Tuesday, November 18, 2014

2. What is GST? • GST is a Tax on Goods and Services. • Tax is levied at every point of value chain-from production/import point to consumption point. • Tax is levied only on value addition-with input tax credit facility, no tax cascading at any stage.

3. Current Central taxes on goods and services • Excise duty on manufacture of goods with input tax credit facility-input tax credit available only on procurement from another manufacturer or under excise net-tax paid on services used as inputs also available for rebate. • Customs Duties on import of goods. • Tax on certain identified services with credit towards tax paid on both services and goods used as inputs.

4. Current State taxes on goods • Karnataka Sales Tax on sale or purchase of petrol, aviation fuel, diesel and sugarcane-single point levy- tax levied even on Central Excise Duty component of the sale price. • Karnataka Value Added Tax on sale or purchase of all other goods at all points with a facility of input tax rebate - tax levied even on Central Excise Duty component of the sale price. • Entry tax on certain notified goods into local areas-single point levy-is in lieu of Octroi. • Tax on inter-State sale of goods though a Central tax, collected and retained by the State.

5. Current State taxes on services • Entertainments tax on cinema shows, video shows, amusements, recreation parlours, entertainment provided by multi system operators, DTH operators and cable operators, horse races, etc. • Luxury tax on luxuries provided in hotels, clubs, marriage halls, hospitals, etc. • Betting tax on bets placed on horse races.

6. Salient features of proposed GST • Dual GST on all goods and services-two components-Central GST (CGST) & State GST (SGST) on the same tax base-no SGST on CGST component of sale price-facility of input tax rebate-however, no cross input tax rebate-between SGST and CGST. • Separate legislations for levy of CGST and SGST-State legislations, rules and formats to be uniform. • Certain goods and services to be exempted uniformly in all the States.

7. Salient features of proposed GST • Uniform threshold of annual turnover of Rs.10 lakhs proposed for SGST for both goods and services • Threshold of Rs.1.5 Crores for CGST on goods recommended – an appropriately high threshold for CGST on services recommended. • Composition scheme for annual turnovers upto Rs.50 lakhs under SGST- a floor rate of 0.5% recommended.

8. Salient features of proposed GST • Two rates of SGST and CGST for goods-a lower and higher standard rate, with a nominal rate for noble metals and articles-single rate recommended for services. • Concurrent administration by both Central and State tax authorities-common formats of returns for CGST and SGST-however, to be filed separately to Central and State authorities. • Co-ordination between Central and State authorities in assessment, enforcement, etc. • Taxpayer Identification Number to be based on PAN-13/15 digits likely.

9. Salient features of proposed GST • Central taxes to be subsumed under GST-Excise Duties, Additional Customs Duty (CVD), Special Additional Customs Duty and related surcharges and cesses. • State taxes to be subsumed under GST-KST on sugarcane, VAT, Entertainments Tax, Luxury Tax and Betting Tax. • KST on petrol, aviation fuel and diesel to continue-crude to be brought under KST. • Inclusion of natural gas under GST under discussion. • Taxable event to be supply or acquisition and not sale or purchase. • Imports of goods and services subject to CGST and SGST.

10. Salient features of proposed GST • Current CST on inter-State sales to discontinue-goods and services taken out of a State for consumption in the another State to be taxed in the State of consumption-refund of any SGST paid on such goods and services in the exporting State. • Zero rating of exports- no SGST or CGST on exports goods and services - SGST paid on inputs including goods exported refundable to the exporter.

11. TAXATION OF INTER-STATE TRANSACTIONS • Levy of IGST on inter-State sales and transfers-a combined rate of SGST and CGST. • IGST to be paid to the Central authorities-seller/supplier can pay IGST out of his IGST, CGST or SGST credit –seller/supplier to file details of inter-State transactions and IGST payments electronically. • Purchaser/receiver to use IGST credit to pay his IGST, CGST or SGST liability. • Reconciliation of payments/receipts to be handled by a Central Agency. • IGST basically on goods. • In respect of services where supplier and receiver or supply and consumption are in different States, rules to be framed to determine the place of supply of services for taxation by a State.

12. Salient features of proposed GST • Zero rating of sales/supplies to SEZ developers/units recommended. • Unavailed incentives to new industries to continue till expiry period-however, no exemption as under current VAT.

13. Requirements for introduction of GST • Suitable Constitutional amendments. • Central and State legislations. • Central and State regulations/rules. • Finalisation of forms/formats. • Re-organisation of State Tax Department to administer GST.

14. Benefits to Trade and Industry • Seamless input tax credit. • Removal of current restrictions on input tax credit. • Higher thresholds to benefit small businesses. • Input tax credit even on tax paid on inter-State procurement. • Uniform tax rates, legislations, procedures and formats across all the States. • Common returns/formats under CGST and SGST making compliance easier and economical.

15. Challenges to Trade and Industry • To pay two levies-CGST and SGST. • To comply with two legislations and regulations. • Service providers operating in more than one State to comply with SGST requirements in such States. • Apportionment of input tax credit on inputs consumed in more than one State. • IGST on stock/branch/consignment transfers. • Designing and switching over to new accounting/documentation requirements.

16. Challenges before the State • Determination of Revenue Neutral Rate. • Likely revenue loss on account of lower average RNR of all the States as compared to higher RNR of Karnataka and because of higher thresholds under GST. • To minimise revenue loss/tax evasion on wrong/false input tax credit claims especially under IGST. • To handle transition issues. • To widen tax base by bringing all taxable businesses under tax net. • To minimise the time required to stabilise new tax scheme.

17. Expectations from Trade and Industry • Better tax compliance. • Passing on the benefit of lower tax and removal tax cascading to the consumers. • Suggestions to improve tax compliance and administration.

18. Expectations from Consumers • To bear with temporary price variations during transition period. • To help in improvement of tax compliance by insisting on tax invoices.